Oxford Lane Capital Corp. 7.95% Notes due 2032 (OXLCG) Q4 2026 Earnings Report, Transcript and Summary

Hi, and thank you for standing by. This is Roy, and I will be your conference operator today. And at this time, I would like to welcome everyone to the Oxford Lane Capital Corp. announces net asset value and selected financial results for the fourth fiscal quarter. [Operator Instructions] I would now like to turn the call over back to Jonathan Cohen. You may now begin.

Good morning, and welcome to the Oxford Lane Capital Corp. Fourth Fiscal Quarter 2026 Earnings Conference Call. I'm joined today by Saul Rosenthal, our President; Bruce Rubin, our Chief Financial Officer; and Joe Kupka, Managing Director. Bruce, could you open the call with a disclosure regarding forward-looking statements?

Sure, Jonathan. Today's conference call is being recorded. An audio replay of the call will be available for 30 days. Replay information is included in our press release that was issued earlier this morning. Please note that this call is the property of Oxford Lane Capital Corp. Any unauthorized rebroadcast of this call in any form is strictly prohibited. At this point, please direct your attention to the customary disclosure in this morning's press release regarding forward-looking information. Today's conference call includes forward-looking statements and projections that reflect the company's current views with respect to, among other things, future events and financial performance. We ask you to refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from those indicated in these projections. We do not undertake to update our forward-looking statements unless required to do so by law. During this call, we will use terms defined in the earnings release and also refer to non-GAAP measures. For definitions and reconciliations to GAAP, please refer to our earnings release posted on our website at www.oxfordlanecapital.com. With that, I'll turn the presentation back to Jonathan.

Thanks, Bruce. On March 31, 2026, our net asset value per share stood at $10.56 compared to a net asset value per share of $15.51 as of the prior quarter. As of April 30, 2026, the midpoint of the range of our estimated net asset values per share was $11.27. For the quarter ended March, we recorded GAAP total investment income of approximately $94 million, representing a decrease of approximately $23.8 million from the prior quarter. The quarter's GAAP total investment income consisted of approximately $90.8 million from our CLO equity and CLO warehouse investments and approximately $3.1 million from our CLO debt investments and from other income. Oxford Lane recorded GAAP net investment income of approximately $54.5 million or $0.56 per share for the quarter ended March compared to approximately $71.8 million or $0.74 per share for the quarter ended December 31. Our core net investment income was approximately $100.7 million or $1.03 per share for the quarter ended March 31 compared with approximately $108.9 million or $1.12 per share for the quarter ended December 31. As of the end of March, we held approximately $64 million in newly issued or newly acquired CLO equity investments that had not yet made initial distributions to Oxford Lane. For the quarter ended March, we recorded net unrealized depreciation on investments of approximately $381.4 million and net realized losses of approximately $38.4 million. We had a net decrease in net assets resulting from operations of approximately $365.3 million or $3.74 per share for the fourth fiscal quarter. As of March 31, the following metrics applied. We note that none of these metrics necessarily represented a total return to shareholders. The weighted average effective yield of our CLO equity investments at current cost was 11.7%, down from 13.8% as of December. The weighted average cash distribution yield of our CLO equity investments at current cost was 16.7%, down from 19% as of December 31. We note that the cash distribution yields calculated on our CLO equity investments are based on the cash distributions which we received or which we were entitled to receive at each respective period end. During the quarter ended March, we made additional CLO investments of approximately $500,000, and we received approximately $82.9 million from sales and from repayments. On May 14, our Board of Directors declared monthly common stock distributions of $0.20 per share for each of the months ending July, August and September of 2026. With that, I will now turn the call over to Joe Kupka. Joe?

Thanks, Jonathan. During the quarter ended March 31, 2026, U.S. loan market performance declined versus the prior quarter. U.S. loan price index decreased from 96.64% as of December 31, 2025, to 94.63% as of March 31. The decrease in U.S. loan prices led to an approximate 17-point decrease in median U.S. CLO equity net asset values. Additionally, we observed median weighted average spreads across loan pools within CLO portfolios decreased to 304 basis points compared to 311 basis points last quarter. The 12-month trailing default rate for the loan index increased to 1.4% by principal amount at the end of the quarter from 1.2% at the end of December. We note that out-of-court restructurings, exchanges and subpar buybacks, which are not captured in the cited default rate remain elevated. CLO new issuance for the quarter totaled approximately $47 billion, reflecting an approximate $8 billion decrease from the previous quarter. Additionally, the U.S. CLO market saw approximately $56 billion in reset and refinancing activity in Q1 2026 compared to approximately $74 billion in the previous quarter. Oxford Lane remained active this quarter, trading over $75 million in CLO equity and CLO warehouses. During the quarter, we also led or participated in numerous resets or refinancings, taking advantage of tightening liability spreads to lower the cost of funding and lengthen the weighted average reinvestment period of Oxford Lane's CLO equity portfolio from August 2029 to October 2029. We continue to evaluate existing investments for opportunities to improve the economics of our CLO equity positions. In the current market environment, we intend to continue to utilize our opportunistic and unconstrained CLO investment strategy across U.S. CLO equity, debt and warehouses as we look to maximize our long-term total return. And as a permanent capital vehicle, we have historically been able to take a longer-term view towards our investment strategy. With that, I'll turn the call back over to Jonathan.

Thanks, Joe. Additional information about Oxford Lane's fourth fiscal quarter financial performance has been uploaded to our website at oxfordlanecapital.com. With that, operator, we're happy to poll for any questions.

[Operator Instructions] Your first question comes from Erik Zwick with Lucid Capital Markets.

Hoping, Jonathan, to start just on a question in terms of kind of understanding the primary drivers of the unrealized depreciation in 1Q. I mean, it seems like for most of '25, it was the tightening spread, but it seems like it may have been a little bit different just more due to kind of reduced activity in the secondary market in 1Q. Is the perception right there? And then kind of curious if that's persisting here into 2Q at this point.

Erik, yes. So I think there were a few different factors. As you said, the loan compression on the assets continued. So not quite to the extent we saw in 2025, but we did see that continuing and CLOs did lose additional spread in Q1. Additionally, we saw the loan market sell off driven by the decrease in tech and software names. And finally, we did see a pullback in buyers for CLO equity. So bid-ask spreads really blew out, and there were just a lack of buyers. So that definitely hurt the mark-to-market on our positions as well.

Joe, would you say -- and just as a follow-up to Erik's question, would you say that for this most recent quarter, technical factors, bid-ask spreads and flows of funds or more fundamental factors such as continued U.S. syndicated corporate loan spread compression, which of those 2 were, in your estimation, the more relevant?

I would say it was a combination of those. Definitely, the NAV selloff hurt substantially, but especially towards the end of the quarter when there were just a definite lack of buyers that hurt as well. Since quarter end, we've definitely seen a pause for the time being on continued loan compression, but we are now seeing loans above par approach 40% to 50%. So there could be additional loan repricings. But we've definitely seen a healthier market. April was a very strong month for CLO equity. We've seen a lot of buyers step back in. So things at least quarter-to-date have stabilized for sure.

That's definitely helpful. And the estimated April NAV that you provided this morning would suggest just that, and it sounds like it's continued through May. So that's good to hear. And in terms of the deployment into new investments in the quarter, $500,000 is relatively light compared to historicals. And I guess some of that reflects, one, just kind of the market dynamics that you talked about, there just wasn't a whole lot out there, particularly for sale. But I guess as things have potentially improved here in the second calendar quarter? Are you seeing more opportunities to put capital to work at this point?

We are, Erik. Certainly, in the secondary market, liquidity has improved, bid-ask spreads seem to have tightened fairly meaningfully and trading activity just overall has stepped up pretty dramatically compared to a month or 2 ago. So the answer from our perspective is certainly yes.

That's good to hear. And then just in terms of kind of given the unrealized depreciation, hopefully, that continues to unwind and you see some recovery there. But just given that we don't know exactly how sustained this improvement could be, how are you thinking about leverage in the portfolio today?

I think -- I'm thinking from a -- I think we're all thinking, Erik, from a fairly conservative perspective. We went into this most recent downturn at a level of overall leverage that I think has proven to be reasonably manageable. And in terms of a percentage of leverage or percentage of debt to equity on our balance sheet, we certainly would be not looking to increase that through the issuance of any additional debt that wasn't used to repay existing debt.

Got you. That's helpful. And last one for me, Jonathan, I missed I couldn't type fast enough. You mentioned the dollar amount of CLO investments that have yet to make their initial distributions. Could you just provide that for me once again?

Sure. It was $64 million as of March 31.

I show no further questions. And with that, I will turn the call back over to Jonathan Cohen, CEO.

We would like to thank very much everybody who participated in this call and everyone who's listening on the replay. We look forward to speaking to you again soon. Thanks very much.

Ladies and gentlemen, this concludes today's call. .